Asia-Europe spot rates drop again

Latest Shanghai index points to weakness of GRIs. Peak season surcharges may not materialise

Mike Weir

Monday, 28 May 2012

  

Last week’s falling spot rates for containerised freight on the Asia-Europe trade lane indicate that the shipping lines’ solidarity over general rate increases (GRIs) could fray, say market commentators. 
The overall Shanghai Containerised Freight Index (SCFI) fell $17 to $1,409 but this masked bigger drops in the Shanghai-Europe and Shanghai-Mediterranean components. 

Container freight derivatives for Q4 2012 were also trading at a significant discount to the spot market suggesting that market participants expect conditions to worsen. 

Derivatives broker Ben Gibson of Clarkson Securities said: “The week saw sellers move to lock in Asia-Europe rates for the peak season as confidence in future GRIs or peak season surcharges (PSSs) took a big fall and trading activity took the SCFI Eur Q3 contract below current spot prices. 

“Shippers who were looking to hedge at spot prices have now withdrawn back to below where physical business is being done as the overwhelming expectation is that the market will continue to fall in the coming weeks.” 

Further weakness in the container market has been highlighted by the slow appearance of the Asia-Europe PSS of around $350 per teu. At least one company, United Arab Shipping Company, has delayed implementation of its PSS until 16 June. 

“The gains made by carriers since January have been successful in part due to a unified approach on the implementation dates,” said Cherri Wang of GFI Group, another derivatives broker. 

“UASC’s decision to delay suggests that they either don’t feel that the peak volume is there just yet, or that they see an opportunity to increase their utilisation levels by offering cheaper freight for two weeks. Perhaps these explanations seem cynical but the fact remains that in delaying by two weeks they are weakening the overall impact of the wider PSS. 

“Carriers will be keeping a particularly close eye on their volumes over the next couple of weeks and will no doubt be ready to move on their PSS position if they fear that their competitors may be attacking their market share.”

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